Back in January, I added unregulated electricity generator and retailer Vistra Energy (NYSE: VST) to the Aggressive Holdings for three reasons.
First, the company is a cash machine, consistently shaving costs from its business and debt from its balance sheet while gaining market share with acquisitions and “greening” its generation fleet. Second, its shares traded at a major valuation gap I thought would close as the US economy strengthened. And third, there was a growing possibility of a takeover, potentially by private capital.
Conservative Holding Avangrid Inc (NYSE: AGR) hasn’t raised its dividend since July 2018. Not surprisingly, its returns have since lagged the Dow Jones Utility Average by more than 25 percentage points.
Two major developments in the past month promise a favorable reversal of fortune, even as shares have dropped roughly 10 percent to an attractive entry point.
Economics not politics drive investment returns. Don’t get me wrong. Our Portfolio stocks came out very well in the recent election as businesses, future regulatory relations being the key concern.
The renewable energy focus of our electricity stocks is tailor-made for a new White House that will if anything try to speed up America’s ongoing energy transition. And the offshore wind stocks highlighted in the feature article are likely to be the next sector picks to pop, following example of contract generators like Brookfield Renewable Energy Partners (TSX: BEP-U, NYSE: BEP).
Energy Transfer LP (NYSE: ET) and Infraestructura Energetica (Mexico: IENOVA, OTC: IENVF) are the 25th and 26th dividend cutters from our Utility Report Card coverage universe in calendar 2020.
The silver lining is management’s decisions were clearly made for preference, rather than of necessity. That’s encouraging for both companies as well as others we track, with the result our Endangered Dividends List is the shortest it’s been all year.
Elections have consequences. And when businesses are as tightly regulated as utilities, investors must always keep a clear, non-partisan eye on the implications of results.
Contrary to popular belief, the most important election results to watch are always at the state level. And this year featured nearly 6,000 individual legislative races in 44 states, as well as governors’ races in 11.
“Keep it simple” is a best practices business maxim that’s far easier to preach than practice. But when a company consistently sticks to it, superior results follow—as they have for nearly 20 years at Michigan electric and gas utility CMS Energy (NYSE: CMS).
Surging prices for anything to do with renewable energy, lagging valuations for virtually everything else: That’s the current state of affairs for the Utility Report Card coverage as companies gear up to release results for now finished Q3.
Never buy a company just because it may get a takeover offer—unless you’d be happy owning if there’s never a deal. That’s a rule I’ve followed religiously for over 35 years in this business. It’s kept me away from some obvious targets like the former Sprint, which was ultimately bought after nearly going bankrupt.
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Warning: Falling Dividends.
Roger's current take and vital statistics on more than 200 essential-services stocks.